New Plays, Saturday, 03/08/2008

New Option Plays

by James Brown

** PLEASE READ **

Play Editor's Note: Thursday night I told readers that I was bearish on stocks,
thought we were headed lower, but warned we were probably near a short-term
bounce. I am repeating that same concern tonight. My concern is that stocks will
bounce near the intraday January lows on the DJIA, the S&P 500 and the Russell
2000. Furthermore, Asian markets should sell-off on the U.S. market's weakness
from Friday. That will lead European markets lower and we could see another
capitulation
day on Monday. Yet to really be interpreted as capitulation we need
to see a big volume day and see the VIX spike to more than 30, probably
somewhere in the 31-36 zone.

If we actually see a big sell-off with the spike in the VIX it will be a buying
opportunity. It's probably a short-term buying opportunity but still worth a
multi-day rally. That's why I STRONGLY hesitate to list any new bearish plays
right here. However, there is no guarantee that we're going to see that washout
any time soon and equities could just keep falling. Do we sit on the sidelines
and wait for the sell-off that could take days to show up? Or do we trade what
the market is
providing?

Right now all the market is providing is bearish opportunities, aside from a few
exceptions. That can be an alarming observation in an of itself. When everything
looks bearish a trader should have caution flags going off in their heads.
Basically if everyone is leaning on the same side of the boat it could tip over
and rebound. We also have to remember that we are in a bear market. Bear market
rallies tend to be fast and sharp and they sucker in another herd of bulls that
eventually
get slaughtered when the rally runs out of steam and forms a new
lower high. We can still trade the rallies but we have to get in knowing we only
have a few days before it's time to exit.

We are adding new put plays tonight. However, readers need to decide if A)
they're willing to trade in this market, and B) what sort of stop loss strategy
are you going to use? You could use a very tight, conservative stop loss
strategy so that if we do see a bear market rally we're stopped out quickly. Or
you could use a very aggressive, wide stop loss strategy and try to weather any
rebound. If you choose not to trade right now then just wait for the bounce and
when the rally starts
to stall then start picking your bearish entry points.

New Calls

Ingersoll Rand - IR - close: 42.87 change: +0.22 stop: 39.74

Company Description:
Ingersoll Rand is a global diversified industrial firm providing products,
services and solutions to transport and protect food and perishables, secure
homes and commercial properties, and enhance industrial productivity and
efficiency. (source: company press release or website)

Why We Like It:
IR was one of the few stocks we found that looked like a bullish candidate. The
relative strength this stock displayed the last couple of weeks is impressive.
Shares have built a bullish pattern of higher lows and looks ready to breakout
past the $43.50 zone. We are suggesting positions here. However, readers
definitely have choices. You could wait for that new relative high over $43.50.
Or better yet, look for a dip near $42.00 or $41.00. If the market moves lower
on Monday like we
believe it will then IR could easily dip towards its 50-dma
near 40.65. Buy the dip or wait for the bounce - either should work. There is
potential resistance near $45.00 and its 100-dma but our target is the
47.00-47.50 zone.

New Puts

Company Description:
Cytec Industries Inc. is a global specialty chemicals and materials company
focused on developing, manufacturing and selling value-added products. Our
products serve a diverse range of end markets including aerospace, adhesives,
automotive and industrial coatings, chemical intermediates, inks, mining and
plastics. (source: company press release or website)

Why We Like It:
CYT's rally attempt in late February reversed just above $60 and its 100-dma and
exponential 200-dma. The move definitely looks like a bull trap. More recently
the stock has now broken down through support at the $55.00 level and technical
oscillators have turned bearish. The P&F chart is bearish too with a $48 target.
We don't have the best risk:reward ratio with our wide stop loss but $58 is the
nearest resistance. The $50.00 level looks like nearest support so we are
targeting
a drop into the $50.25-50.00 zone.

Company Description:
Express Scripts, Inc. is one of the largest pharmacy benefit management (PBM)
companies in North America, providing PBM services to 55 million patients
through facilities in 13 states and Canada. (source: company press release or
website)

Why We Like It:
Shares of ESRX have definitely broken their bullish trend from 2007 and there is
plenty of room for additional profit taking. The stock has been trying to
consolidate sideways the last few weeks but investors kept selling the rallies.
Now the stock has broken support near $60.00 and its 200-dma. It looks like it's
time for another leg lower. We are listing two targets. Our first, short-term
target is the $55.50-55.00 zone. Our second, more aggressive target is the
$51.50-50.00 zone.
Currently the P&F chart is bearish with a $54 target. FYI:
The most recent data listed short interest at 3.8% of the 251 million-share
float, which is about 3.4 days worth of short interest.

Company Description:
FedEx Corp. provides customers and businesses worldwide with a broad portfolio
of transportation, e-commerce and business services. (source: company press
release or website)

Why We Like It:
The transports look like they are poised to breakdown. Honestly, we're surprised
that $105 oil hasn't sparked a sell-off sooner. Shares of FDX have pulled back
toward support near $86.00. We are suggesting a trigger to buy puts at $85.95.
If triggered our target is the $80.50-80.00 zone. We are playing with a
relatively wide (aggressive) stop loss at $90.05. You may want to use a tighter
stop. Currently the P&F chart is bearish with an $82 target. FYI: The most
recent data lists
short interest at 3% of the 289 million-share float.

Suggested Options:
We are suggesting the April puts. Our suggested trigger is $85.95.

Company Description:
Harley-Davidson, Inc. is the parent company for the group of companies doing
business as Harley-Davidson Motor Company, Buell Motorcycle Company and
Harley-Davidson Financial Services, Inc. Harley-Davidson Motor Company, the only
major U.S.-based motorcycle manufacturer, produces heavyweight motorcycles and
offers a complete line of motorcycle parts, accessories, apparel, and general
merchandise. (source: company press release or website)

Why We Like It:
If we are in a consumer-lead recession then HOG should continue to sink to new
lows. The stock is already well entrenched in a bearish pattern lower and is
clinging desperately to support near $35.00. Our preferred entry point would be
a failed rally near $37.00 or even the 50-dma near $40 but that may not happen
any time soon. If we see a failed rally readers should jump on it. However, odds
look better that HOG is ready to breakdown. We're suggesting a trigger to buy
puts at $34.69.
This particular play is using a very aggressive (a.k.a. wide)
stop loss. If the market does bounce then HOG could easily rebound toward its
50-dma. We're listing our stop at $40.26 to start. That may be too wide for you.
Our target is the $30.50-30.00 zone although it wouldn't surprise me to see a
drop closer to $25. The P&F chart is bearish with a bearish triangle breakdown
sell signal. FYI: The most recent data lists short interest at 9.6% of the 236
million-share float. That
is an above average amount of short interest and
raises our risk of a short squeeze.

Suggested Options:
We are suggesting the April puts. Our suggested trigger is $34.74.

Company Description:
The IYT is the iShares for the Dow Jones Transportation Average. This is an
exchange traded fund (ETF) that mimics the transportationindex.

Why We Like It:
The IYT spend weeks consolidating under resistance near $86.50 and its 200-dma.
Now it's beginning to breakdown as it flirts with support near $80.00.
Aggressive traders might just want to jump in right now. We want to see a new
relative low so we're suggesting a trigger at $79.25 to open positions. If
triggered our target is the $75.00-74.00 zone. The IYT might find short-term
support near $77.50 but it should only be temporary. The Point & Figure chart is
bearish with a catapult
breakdown sell signal and a $75 target.

Suggested Options:
We are suggesting the April puts. Our suggested trigger is $79.25.

Company Description:
A recognized leader in research and development, 3M produces thousands of
innovative products for dozens of diverse markets. 3Ms core strength is
applying its more than 40 distinct technology platforms often in combination
to a wide array of customer needs. With $24 billion in sales, 3M employs 75,000
people worldwide and has operations in more than 60 countries. (source: company
press release or website)

Why We Like It:
MMM will probably be another casualty of the consumer-lead recession. The stock
is already in a bearish channel. Now after a month of consolidating sideways the
stock is moving lower after producing a failed rally near $80.00 and its 50-dma.
We are setting two targets. The first target is the $72.25 level, just above the
January 2008 lows. Our second target is the $68.00 level, which should be closer
to the bottom edge of MMM's bearish channel. The P&F chart is currently bearish
with a $62 target. FYI: The most recent data lists short interest at just 1.5%
of the 707 million-share float.

Company Description:
Praxair is the largest industrial gases company in North and South America, and
one of the largest worldwide, with 2007 sales of $9.4 billion. (source: company
press release or website)

Why We Like It:
After weeks of consolidating sideways it looks like PX is about to breakdown
under support at $78.00. Shares have already produced a failed rally under its
50-dmaand closed under its simple 200-dma. We want to see a little more follow
through so we're suggesting a trigger to buy puts at $77.90. If triggered our
target is the $73.00-72.50 zone. More aggressive traders could aim for $70.00
near its January lows. The P&F chart is bearish with a $73 target. FYI: The most
recent data
lists short interest at just 1% of the 312 million-share float.

Suggested Options:
We are suggesting the April puts. Our suggested trigger is at $77.90.